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Inside Washington (02/26/2009)

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* WASHINGTON (2/27/09)--More than 70 Pennsylvania credit union leaders attended a congressional breakfast sponsored Wednesday by the Pennsylvania Credit Union Association (PCUA) during the Credit Union National Association's Governmental Affairs Conference. Congressional delegates attending included Jason Altmire (D); Chris Carney (D); Charles Dent (R); Patrick Murphy (D); Tim Murphy (R); Allyson Schwartz (D); Bill Shuster (R); and Glenn Thompson (R). Also attending was a representative of Rep. John Murtha's (D) office. Visits to Capitol Hill Wednesday included meetings with Sen. Arlen Specter (R) and Rep. Jim Herlach (R), Tim Holden (D) and Todd Platts (R). PCUA President/CEO Jim McCormack and Christina Mihalik, PCUA vice president, governmental affairs, joined Mid-Atlantic Corporate FCU President/CEO Jay Murray and his staff for a visit with Rep. Paul Kanjorski (D) to provide and update on the corporate credit union system. Newly elected Rep. Kathy Dahlkemper (D) was visited by PCUA Board director Norb Kaczmarek, CEO, Erie FCU; Dave Ackerman, CEO of USX FCU, and USX board member Christopher Panian … * WASHINGTON (2/27/09)--The board of the Federal Deposit Insurance Corp. (FDIC) is scheduled to meet today to set deposit insurance premium rates for second quarter, but many expect its staff to recommend charging a special assessment on the banking industry so it can boost federal reserves (American Banker Feb. 26). Although such an assessment has not been determined, sources said officials may consider a rate between 14 and 16 cents for every $100 in domestic deposits. If FDIC elects to go this route, sources said the special assessment would be charged in the second quarter on top of current premiums. Most banks typically pay 12 to 14 basis points at present … * WASHINGTON (2/27/09)--Former Washington State Gov. Gary Locke has been tapped by President Barack Obama as the latest nominee for secretary of commerce (The New York Times Feb. 26). He is Obama's third nominee for the position. Two other nominees--New Mexico Gov. Bill Richardson and Sen. Judd Gregg of New Hampshire--withdrew their nominations. Richard cited a federal investigation into state contracting. Gregg, a Republican, decided he and Obama weren't in tune on issues. Locke--a partner in Seattle law firm Davis Wright Tremaine, where he represented Microsoft and other firms doing business in China--is a pro-trade Democrat. He was the nation's first Chinese-American governor from 1997 to 2005 … * WASHINGTON (2/27/09)--Office of Thrift Supervision (OTS) Director John Reich said Thursday that consolidation of regulators won't be a cure-all for the gaps that exist in financial regulation and noted there are still advantages to thrift charters. OTS regulates 810 thrifts focused mostly on mortgage lending. Policymakers have in the past several months called for a consolidation of OTS and the regulator of the nation's largest banks, the Office of the Comptroller of the Currency. "Moving boxes on a chart will not assure that we have a level playing field and will not ensure that gaps in regulation that have existed and still exist are covered," Reich said (Reuters Feb. 26) … * WASHINGTON (2/27/09)--The Treasury Department Wednesday revealed specifics on how it and an interagency team of federal regulators would perform stress tests on the nation's 19 largest banks to determine if their capital is enough to survive a deep recession. Banks with more than $100 billion in assets will undergo two tests: a baseline scenario reflecting consensus expectations and a more adverse scenario. Both would project the gross domestic product (GDP) growth, the unemployment rate, and changes in housing prices. The adverse scenario would assume a GDP of -3.3% in 2009 and a gain of 0.5% in 2010; an unemployment rate of 8.9% in 2009 and 10.3% in 2010; and house price declines of 22% in 2009 and 7% in 2010. The Treasury expects the tests to be finished by the end of April. If a test indicates a bank's capital is inadequate, the bank will have six months to raise the funds via private investors or by accessing capital from the Treasury. Analysts say the real story is how the government will convince private investors to invest in undercapitalized banks (American Banker Feb. 26) …

Obama proposes doubling of CDFI funds

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WASHINGTON (2/27/09)—The Obama administration has proposed expanding lending in disadvantaged communities by doubling appropriations for the U.S. Treasury Department’s Community Development Financial Institutions (CDFI) Fund. A White House document noted that, through merit-based grant programs, the CDFI Fund helps locally based financial institutions offer small business, consumer and home loans in communities and populations that lack access to affordable credit. John Hildreth, senior legislative representative for the Credit Union National Association (CUNA), said that if the budget is passed by the U.S. Congress, it would mean that more than $200 million would be available for the CDFI Fund. CDFIs are financial intermediaries such as certain credit unions, banks, loan funds, venture capital funds, corporation-based lenders and microenterprise development loan funds. The House on Wednesday passed the Obama administration's omnibus spending bill.

Kanjorski announces systemic risk hearing

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WASHINGTON (2/27/09)—Rep. Paul Kanjorski (D-Pa.) announced what he said would be the first in a series of hearings to examine how to improve the ability of the government to prevent private sector activities from putting the country’s economy at risk. Kanjorski is chairman of the House Financial Services subcommittee on capital markets, insurance, and government-sponsored enterprises, He said his subcommittee’s series of hearings will assist its parent committee craft legislation to create a systemic risk regulator for the financial services industry. The initial hearing is scheduled for March 5. Witnesses will be announced at a later date.

Jenkins thanks CUs for support

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WASHINGTON (2/27/09)--Rep. Lynn Jenkins (R-Kan.) thanked credit unions for their support in helping her win a seat in the U.S. House of Representatives during the closing session of the Credit Union National Association (CUNA) Governmental Affairs Conference Thursday. “I have all of you to thank for the opportunity,” she said. “Thank you for the role, and I’m looking forward to building relationships with Kansas credit unions and all of you.” Jenkins, a long-time credit union advocate, defeated Rep. Nancy Boyda (D-Kan.) in 2008 with the help of the Credit Union Legislative Action Committee (CULAC), CUNA’s federal political action committee. Like other policymakers speaking at the closing session, Jenkins noted a mortgage cramdown bill that is expected to be voted on in the House next week. “Cramdown increases lender risk and [leads to] interest rate hikes,” she said. There’s also a difference between helping lenders and lenders who knowingly sold unaffordable mortgages to borrowers, she added. “Those who made their payments on time [and made good mortgages] should not have to pay for the mistakes of lenders who made bad mortgages.”

Royce Cramdown not in CUs interest

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WASHINGTON (2/27/09)—Mortgage cramdown is not in credit unions’ best interests, according to Rep. Ed Royce (R-Calif.). Royce commented on a cramdown bill--which was expected to be voted on Thursday but was moved to next week—during a speech at the closing session of the Credit Union National Association (CUNA)’s Governmental Affairs Conference. The bill would allow bankruptcy judges to alter terms of mortgages nearing default. Like several other policymakers who expressed their opposition to the proposed legislation during the conference, Royce said cramdown would lead to higher interest rates. The House delayed its scheduled cohsideration of the bill Thursday. Royce also noted that cramdown would send a message to society that it’s okay to “walk away from contractual agreements.” “Should we allow breach of contract?” Royce said. “There would be adverse consequences in the availability of loans.” Investors would fear putting their money into the market, he added. Credit unions’ conservative lending standards sharply contrast the over-leveraging of other financial institutions. Credit unions are exemplary in their standards, and they know how to treat borrowers, Royce said. Subjecting credit unions to the Community Reinvestment Act (CRA) would be a “grave mistake,” Royce added, and said he did not support mark-to-market accounting. “We need to make sure credit unions are not punished for other’s mistakes,” he said. Credit unions should spread their awareness to Capitol Hill, so legislators understand how much credit unions mean not only to the U.S.—but overseas. “Credit unions work—if it’s in Orange County, Calif., or Cape Town, South Africa,” he said. “The credit union movement brings capital to the communities who need it most.” Overall, Royce said he is confident that credit unions will survive tough economic times. “I know we’re going to get out of this debacle with credit unions stronger, and ready to go out and create economic recovery,” he said.

No taxation of CUs Camp says

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WASHINGTON (2/27/09)—“No taxation of credit unions!” Rep. Dave Camp (R-Mich.) exclaimed to an audience of credit union representatives at the Credit Union National Association (CUNA) Governmental Affairs Conference during Thursday’s closing session. The audience enthusiastically responded to Camp’s statement with a round of applause as he continued to praise credit unions for their work, and recognized that credit unions’ unique structure and tax-exempt status often subjects them to scrutiny. Camp is ranking minority member of the powerful House Ways and Means Committee. “Credit unions face challenges,” he said. “But you remain strong financially. If banks followed your strategies, we would not be facing this credit crisis.” Echoing similar thoughts from other lawmakers this week, Camp voiced his opposition to a mortgage cramdown bill that is expected to be voted on by the House next week. If passed, the bill would allow bankruptcy judges to alter the terms of borrowers’ existing mortgages. “It’s a bad policy,” Camp said. “It should not become law.” Camp encouraged credit unions to continue spreading their message on Capitol Hill. On Wednesday afternoon, Camp said he met with a number of credit union representatives and appreciated what they had to say. “I was pleased to see you on the Hill,” he said, noting that other lawmakers he spoke with also said they were happy to talk with credit union representatives face-to-face. CUNA President/CEO Dan Mica, who later took the stage, said he had received positive feedback about credit unions’ Hill hikes the day before. “You are the pulse of the communities [you serve],” Camp added. “We need to hear from you.”

Vote on mortgage bankruptcy bill delayed

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WASHINGTON (2/27/09)—The U.S. House of Representatives postponed its scheduled consideration of H.R. 1106 Thursday and pushed back substantive debate and a vote until probably next week. The bill contains a provision strongly opposed by the Credit Union National Association (CUNA) that would allow bankruptcy court judges broad authority to change terms of existing mortgages. That practice is commonly referred to as a mortgage “cramdown.” The bill, however, also carries language that would make permanent the higher federal share and deposit insurance cap of $250,000 enacted on a temporary basis in October as part of the Emergency Economic Stabilization Act. The favorable insurance provision appears to remain on track, according to CUNA Vice President Ryan Donovan. But, he said, the negative message on cramdowns, delivered while 4,200 credit union representatives were in town for CUNA’s 2009 Governmental Affairs Conference (GAC), may have slowed the track for that plan. “From a credit union perspective,” Donovan said Thursday, “getting the House to put the brakes on is a positive development.” Earlier this week, CUNA sent a letter to each member of the House to urge changes to the proposed cramdown authority, which CUNA said is “overly broad in scope, application and duration.” CUNA supports other provisions of H.R. 1106, which includes measures that would help families stay in their homes, including improvements to the Hope for Homeowners programs and a safe harbor for lenders that modify certain types of mortgages. CUNA encouraged lawmakers to consider amendments that would limit the application of the bill's cramdown proposal to the subprime and nontraditional mortgages that caused the housing crisis and that would provide a firm sunset on the authority conveyed to the bankruptcy courts through this legislation. The letter also reiterated CUNA’s strong support of the permanent extension of the $250,000 deposit insurance limit, as well as language which would allow the National Credit Union Administration (NCUA) as much as five years to replenish the National Credit Union Share Insurance Fund (NCUSIF) when the fund drops below the statutorily required level.

Lawmaker credits CUs work on cramdown bill

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WASHINGTON (2/27/09)—Rep. John Culberson (R-Tex.), using the micro-blogging service called Twitter, praised credit unions for their work against a mortgage “cramdown” bill. As approximately 4,200 credit union representatives prepared to leave Washington following the final sessions of the Credit Union National Association’s (CUNA’s) Governmental Affairs Conference (GAC), Culberson wrote:
* “The credit unions have done a great service to America by persuading (House Speaker Nancy) Pelosi to pull the bad housing bill from the floor today."
Twitter limits micro-blog postings to 140 characters. “But Rep. Culberson said it all in those few letters,” said Ryan Donovan Thursday. Donovan is CUNA's vice president of legislative affairs. “The Hill visits that are launched in conjunction with CUNA’s GAC are always valuable. This recognition just underscores the impact credit unions have with their grassroots advocacy, especially during the GAC when our numbers are so strong,” Donovan said.

Shared-sign rule adopted by NCUA

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ALEXANDRIA, Va. (2/27/09)—Life may just have gotten a little simpler for credit union personnel responsible for posting share insurance signs at teller stations accepting deposits for both federally insured credit unions and nonfederally insured credit unions. The National Credit Union Administration (NCUA) adopted a final rule that does away with a complicated requirement that a second sign must list each federally insured credit union served by the teller along with a statement that only these credit unions are federally insured. The new rule replaces the required list of federally insured credit unions with a statement that not all of the credit unions served by the teller are federally insured and members should contact their credit union for more information. When it proposed the rule change, the NCUA noted that over the past 37 years, however, the nature of shared branching has changed considerably. The first shared branches were local operations involving just a few credit unions. Now, the NCUA proposing document said, some shared branch networks are national in scope and service hundreds, if not thousands, of individual credit unions. Under modern conditions, the old rule was potentially posing a problem for members who had to sift through a lengthy list of credit union names to ascertain the insurance status of their particular credit union. The new rule becomes effective 30 days after publication in the Federal Register.

NCUA plan could help CU SIPHARP

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ALEXANDRIA, Va. (2/27/09)—The National Credit Union Administration (NCUA) proposed a change to its investment rules for natural person credit unions. The change could remove an impediment to credit union participation in two agency programs, one intended to provide liquidity relief for corporates and the other foreclosure mitigation assistance. At its open board meeting Thursday, the NCUA board set a 60-day comment period for its plan to revise Part 701 of its rules. The change would allow investments by natural person federal credit unions under the Credit Union System Investment Program (CU SIP) and the Credit Union Homeowners Affordability Relief Program (CU HARP) to be excluded from a credit union's total assets for purposes of calculating the operating fee. Under SIP, the NCUA’s Central Liquidity Facility (CLF) makes a secured, one-year advance to the natural person credit union. The credit union must concurrently invest the amount of the advance in a fixed-rate, matched-term, guaranteed note that is issued by the participating corporate. The SIP notes are guaranteed by the National Credit Union Share Insurance Fund. Corporate credit unions use the funds to retire borrowings from outside the credit union system. The CLF determines which corporates will issue the SIP notes to which credit unions. CU HARP, on the other hand, is intended to assist homeowners who are facing delinquency, default, or foreclosure of their mortgages. It’s a one-time, two-year, $2 billion program under which the CLF makes advances for a maximum term of one year, renewable for one year. The Credit Union National Association sought the investment rule change to facilitate credit union participation in the programs.